The Large Deductible Policy
In a large deductible program, the insurer issues a standard policy, pays covered claims from the first dollar and then bills the insured for the losses within the deductible. The NAIC's guidance for receivers describes workers' compensation policies where the insurer pays the claim and seeks the deductible from the insured, and notes that insureds commonly post collateral for those reimbursements.
Because the insurer is on the hook to injured workers or claimants first, the certificate looks like any other policy, which can make a large deductible easier to fit into owner and lender requirements than some other retained structures.
Where one project needs dedicated limits instead, see project-specific liability insurance.
The Self-Insured Retention
With a self-insured retention, the insured typically handles and pays losses up to the retention itself, often through a third-party administrator, and the insurer's obligation attaches above that amount. The NAIC distinguishes these non-advancement structures, where coverage attaches only after the insured pays its share, from large deductible policies where the insurer pays first.
A retention gives the insured more control over claims but also more administrative work and, under some contracts, questions about whether additional insureds have coverage within the retention. Contract exhibits sometimes limit retention sizes, so they are checked first.
How retentions interact with additional insured status is part of subcontractor certificates and additional insureds.
The Captive
A captive is a licensed insurance company the firm owns, alone or with others. It usually reinsures or directly writes a retained layer, often behind a fronting insurer that issues the policies, and it holds capital and reserves under its domicile's rules. Compared with a deductible or retention, a captive adds formation and operating cost but can give the owners a share of the underwriting result, access to reinsurance markets and a structure that can serve several affiliates or members.
The structures and who they typically fit are covered in our overview of construction captive programs.
State Rules on Workers' Compensation Deductibles
Workers' compensation deductibles follow state law. Texas Insurance Code sections 2053.202 and 2053.203 require insurers to offer deductible plans, allow larger negotiated deductibles and provide that the insurer pays benefits within the deductible while the policyholder reimburses, with rules for adequate security. Arizona's A.R.S. 23-963.01 has the carrier pay compensable claims and the employer reimburse up to the deductible, and the carrier still owes compensation if the employer does not. Nevada's NRS 686B defines a large-deductible agreement as one where the policyholder bears $25,000 or more per claim or occurrence, sets collateral requirements for certain insurers and has the agreement filed with the Division of Insurance.
In each state, the deductible changes who reimburses whom; the injured worker's benefits continue to come from the insurer.
Why a Texas captive cannot write comp, which makes a deductible a common alternative, is explained under Texas captive rules, including comp limits.
Choosing Among the Three
Firms often move in stages. A contractor with a few years of steady losses may start with a higher deductible, add a retention on some lines as its claims management matures and study a captive once its loss data is credible and its premium supports the fixed cost. The right answer depends on the lines involved, state limits, the contracts' certificate terms and the owners' appetite for capital and collateral.
- Large deductible: insurer pays first, insured reimburses, collateral common
- Self-insured retention: insured pays first, policy attaches above, more claims control
- Captive: owned insurer finances a layer, more capital and governance, possible share of results
When a captive becomes worth testing is the subject of our captive feasibility review.
Before You Ask for a Quote
What to Gather
- Loss runs by line for five or more years
- Current deductibles, retentions and collateral posted
- Contract exhibits that limit deductibles or retentions
- Claims administration arrangements, if any
What to Ask the Insurer or Surety
- Who pays claims first under each option?
- What collateral will each option require, and how is it released?
- Do our contracts limit retention sizes or require first-dollar coverage?
- At what point would a captive be worth a feasibility study?
Quick Answer
A large deductible policy pays claims first and seeks reimbursement, usually against collateral; a self-insured retention has the insured pay first before the policy attaches; a captive is an owned insurer that finances a retained layer with its own capital. Fit depends on losses, capital and contracts.
Common Mistake
Treating a self-insured retention like a deductible on contract certificates. Some owners require first-dollar coverage for additional insureds, which a retention may not provide.
Broker Perspective
We compare the three side by side on the same loss data and collateral terms, then check the largest contracts for limits on retentions before recommending a direction.
Coverage Impact
Each structure changes who pays retained losses first; the coverage itself depends on the policy forms, endorsements and, for a captive, the fronting and reinsurance terms.
Questions Buyers Ask
What is the main difference between a deductible and a self-insured retention?
Under a large deductible the insurer typically pays the claim and seeks reimbursement; under a self-insured retention the insured generally pays its losses first and the policy attaches above the retained amount.
Why do large deductible programs require collateral?
Because the insurer pays claims before the insured reimburses it, the insurer usually wants security, such as a letter of credit, for those reimbursements. Nevada sets collateral requirements by statute for certain insurers.
Is a captive just a bigger deductible?
No. A captive is a licensed insurer the firm owns, with its own capital, governance and reinsurance, and it can serve affiliates or several members. That adds cost and commitment beyond a deductible.
Does a deductible change an injured worker's benefits?
No. In Texas, Arizona and Nevada the insurer pays benefits and is reimbursed under the deductible terms; the worker's claim runs through the insurer.
Official Sources
- Glossary of Insurance Terms, National Association of Insurance Commissioners. Defines fronting (a primary insurer issues the policy as insurer of record and passes the risk to a reinsurer), captive insurer, deductible and unauthorized reinsurance. Verified 2026-10-25.
- Receivers' Handbook, large deductible policies, National Association of Insurance Commissioners. On some workers' compensation policies the insurer pays the claim and seeks the deductible from the insured, and insureds commonly post collateral; non-advancement policies attach only after the insured pays its deductible or retention. Verified 2026-10-25.
- Texas Insurance Code sections 2053.202-2053.203 (workers' compensation deductible plans), Texas Legislature. Insurers offer deductible plans and may negotiate larger deductibles; the insurer pays benefits within the deductible and the policyholder reimburses, with rules for adequate security. Verified 2026-10-25.
- A.R.S. 23-963.01 (workers' compensation deductibles), Arizona State Legislature. The carrier pays compensable claims and the employer reimburses up to the deductible; the carrier still owes compensation if the employer does not reimburse. Verified 2026-10-25.
- NRS 686B.17595-686B.17863 (large-deductible agreements), Nevada Legislature. Defines a large-deductible agreement as one where the policyholder bears $25,000 or more per claim or occurrence and sets collateral requirements for certain insurers. Verified 2026-10-25.
- Form NDOI-1112, Nevada large deductible filing, Nevada Division of Insurance. Each risk with a deductible of $25,000 or more is filed, with proof of the collateral option used. Verified 2026-10-25.
Reviewed by the Principal, Gleason Insurance Brokers, LLCUpdated
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